GOLD prices are rising. Is it KILLING the US Dollar ? : Geopolitical Case Study

hi everybody if you're an Indian you know how much Indians love buying gold right gold is big business in India just as part of the American dream is to own a home the dream in India is to own gold there is about 20,000 metric tons of gold stashed away in India's households and temples India loves gold so much that we are the second largest consumers of gold in the world in fact Indians owns so much gold that it is more than the gold held by the central banks of the United States Germany Italy France and Russia combined while the US holds only 8,100 tons of gold Russia holds 2332 tons whereas Indian consumers hold 21,000 tons of gold now in the past 6 months if you've been following the markets something crazy has been happening the Indian stock market has hit $5 trillion India stock market overtook Hong Kong and Indian markets the gold pric is at an alltime high above 70,000 rupees gold prices are at historic highs while sensex gave a return of 8. 33% nifty gave a return of 99. 92% whereas the price of gold has shot up by a staggering 16.

16% you know why this is extremely strange because suddenly in the past 2 years the central banks all around the world are suddenly buying tons and tons of gold in fact recently India moved 100 tons of gold back to IND India from England and while India bought 69 tons of gold China bought 314 tons of gold Poland in 2023 bought 130 tons of gold Singapore bought 125 tons and even the Czech Republic bought 75 tons of gold so overall there is a trend of gold stacking all across the world and the gold prices are touching unbelievable levels so the million dollar question over here is why are central banks all across the world buying so much gold what are the most important Global factors that are affecting the price of gold right now and lastly as investors should you consider investing in gold or not before we move ahead let me introduce our education partners of today's episode and that is Odo people Odo is the most beautiful all-in-one business management software that provides a range of applications to simplify your day-to-day business management and as India is heading into a digital Revolution and everything is moving to a digital format document signing somehow is largely still being done on paper and that is because there are very few secured and trusted tools for digital signature and that is why ODU is here to help you out odo's eign feature allows you to sign send and approve documents online removing the chances of errors and hassle by using this application you just have to upload the document and you can select the fields of your choice like the name or the date and simply drag them anywhere on the document like shown on the screen it enables you to create your own document templates and be more productive Ive by sending them directly to the relevant individuals through email the best part is you can also track the signing status by the recipients send automatic reminders and receive notifications once the documents are signed and the signatories can access the documents and IGN them from any device which just a few clicks all of this while ensuring security and keeping the data private and you know what this is completely free for you because Odo gives lifetime free access for your first application on ODU with unlimited hosting and support So if you find this useful check out the link in the description and download Odo [Music] now Cho let's start from the very Basics and understand why is gold such an important commodity in the world economy this is a story that dates back to 1940s and by this time the world had already witnessed World War I and World War II was at its peak world's most hated treaty the Treaty of Versailles thus starting World War II in 1939 whole world is against Hitler and hitlerism the worst war in human history and as we all know the British Empire back then was a superpower with their vast colonies all across the world but by the time they fought World War I and World War II most of their wealth had deteriorated in fact by the early 1940s the condition of the British economy was so bad that their debt to GDP percentage went up from 25% in 1914 to 220% in 1920 to 270% in 1942 and similar was the case with all major countries across the world including France and Soviet Union but the catch over here was that the United States government was so smart that they engaged in these wars first as War merchants and then as participants America appeared as a Land of Plenty undamaged by the war it was more prosperous than ever cheap fuel kept the boom running it helped that America now dominated the world's Banking and trading system with increased Capital production capacity and new technology American industry was in a position to dominate the post-war domestic and World Markets now what does this mean while all the big Empires were busy fighting and dedicated all their Manpower and resources to World War the United States used all of its capital and Manpower into becoming a major supplier of cotton wheat brass rubber automobiles machinery and thousands of goods to these major countries across the world and they supplied these Goods to all the richest countries across the world as a result the United States experienced one of the greatest economic booms in the world the total value of US exports Grew From just 2. 4 billion in 1913 to 6. 2 billion in 1917 and you know what the same thing happened in World War II also wherein the us became a war Merchant and entered the war only after Pearl haror I'll explain this in depth later but for now all you need to know is that by conducting a business out of two of the most expensive Wars in world history the United States made so much money that while every other country's economy was devastated the United States had 75% I repeat the United States had 75% of the entire world's monetary gold and if you look at this graph you will see that their gold reserves went up from just about 2,000 tons in 1910 to almost 20,000 tons in 1940 this is how the United States became a super rich country and here's where the US took the opportunity to gather 44 countries all across the world to sign something called the Breton Woods agreement in 1944 delegates from the 44 Allied Nations gathered in Breton Woods in New Hampshire to negotiate International Financial order and economic cooperation following this what's now known as the bre Woods agreement these meetings are designed to promote trade in the post-war world and to create a foundation for lasting peace and in this agreement 44 countries agreed to Peg their currency against the US dollar and the US dollar was ultimately packed to gold now the question is why did these countries sign the Britain Woods agreement and what was their benefit well firstly the Britain Woods agreement said that they would back the US dollars with gold such that 1 ounce of gold would be worth $35 as in 28.

35 g of gold would be worth $35 and they said that if you own the US Dollars and you come to us we would redeem its value in gold as in we would exchange the US dollars for gold so this way when Indonesia got $1 million from Pakistan even if Indonesia did not trust Pakistan they knew for sure that the 1 million US dollar that they got could be exchanged for gold with the United States so it was definitely Worthy because the US dollar acted as an instrument of trust for trade otherwise if they did their trade with Pakistani rupe then what is a problem today Pakistani rupee might be worth buying one gram of gold but tomorrow Pakistan might just print more money and declare that one gram of gold is worth 20,000 Pakistani rupe so do you realize what would happen the entire value of trade would completely collapse moreover in spite of all this if Indonesia ends up using the Pakistani rupee and stacks of Pakistani rupee if other countries do not trust Pakistan's economy then that money again cannot be used to trade with other countries at all and this is where again the US dollar acted as a common instrument of trust to trade with multiple countries all across the world so after the Britain Woods agreement if the same transaction happened in US Dollars the US guaranteed the value of dollars with gold so you could trade with any country with the US Dollars and be rest assured that it could be used to trade with any other country this is how the US dollar became a currency of of trust and secondly Breton Wood's agreement led to the formation of two major organizations the first was the World Bank and the second was the international monetary fund or IMF and since most of these countries were devastated by War they desperately needed loans to rebuild their economy so with the funding of the United States as you can see the World Bank issued huge sums of loans to help these countries get back on track and thirdly they had the benefit of IMF facilities so while the World Bank gave out long-term loans for development the IMF keeps track of the global economy it assists policy makers and most importantly it lends money to countries with balance of payment difficulties this is the reason why countries like Pakistan and Sri Lanka sought help from the IMF to come out of economic crisis this is how the Britain Woods agreement sealed the importance of the US dollar and gave the United States a huge leverage over other countries this was the first phase of establishment of dollar dominance if this is very very clear to you let's move to the second phase and that is the love affair of the US dollar with [Music] oil this is again a story that D back to World War II and during this time while Russia Britain and the US were busy fighting Germany Italy and Japan the Arabs in Saudi Aria was just chilling in the desert and had nothing to do with the war in fact they didn't even know that they were sitting on the largest black gold mine in the world and during that time that is in the 1930s and 40s the US and British companies were serving surveying and digging the entire world for oil and they had both the technology to extract oil and the Acumen to use it for development this is when in 1938 an American owned oil well in Saudi Arabia drilled into a huge source of oil Reserve after 3 years of slogging and 10 Wells drilled no oil number one produced mostly gas number two more water than oil number three number four almost dry but when I uh opened my note and said we have discovered oil B Voyage now there would be more Wells more workers pouring into dhan and a king would come from Riyad to see for himself meanwhile the Saudis were not so rich back then because they had just started their oil production but during the war Italy had dropped multiple bombs on Saudi Arabia to Target the American facilities and because of this attack Saudi Arabia struggled to produce oil at full capacity so during this time the Saudis desperately needed protection and this is when Franklin roselt who was the president of the US back then he saw insane levels of development all across the world during war and this is when he realized that the key to this and the next five Decades of world development lies in just one commodity and that is oil so you know what he held one of the most important meetings in world history with the King of Saudi Arabia and he made a deal in 1945 that would change the fortunes of of the US dollar Forever the question is what was this deal very simple the United States offered to protect Saudi Arabia from any future attack and provide them with all the military equipments but in exchange he asked the Saudi king to sell oil primarily in US Dollars and guess what the Saudi well that the Americans were digging for was the largest oil well in the world and from here onwards the rise of the Middle East started this is the reason why by 1960s when the oil producing countries formed the OPEC all the oil countries started selling oil in dollars now the question over here is why was selling oil in dollars such a big deal and how did this meeting make the US dollar the most powerful currency in the world well this is where the third phase of the rise of US dollar comes in where dollar became the dollar Mafia now do you remember what did the Britain was agreement say if you Peg your currency to the US dollar tomorrow when you get US Dollars America would redeem its value in gold right but guess what by 1970s the US economy had reached such a pathetic state that the gold reserves had fallen from 22,000 tons in 1950 to just 10,000 tons in 1970 and this was because of multiple reasons like Vietnam War gold price hikes us liabilities Etc but long story short the US gold reserves were so low that they could no longer afford to keep keep exchanging gold for US Dollars and this is when President Richard Nixon declared a temporary suspension of the Dollar's convertibility into gold and the bretonwood system had collapsed in 1973 the strength of a nation's currency is based on the strength of that nation's economy and the American economy is by far the strongest in the world accordingly I have directed the Secretary of the Treasury to take the action necessary to defend the dollar against the speculators I have directed secretary Connelly to suspend temporarily the convertibility of the dollar into gold or other Reserve assets except in amounts and conditions determined to be in the interest of monetary stability and in the best interest of the United States so now countries were free to choose any exchange arrangement for their currency except pegging its value to the price of gold so now one of the most important factors for the value of the currency was not gold but its application as in what could your currency Buy in the global market and from which country and if you remember from our phase two story what could the US dollar buy you in the global market it could buy you the most valuable commodity of the century which was oil so most of the countries by default held on to their Forex reserves in the US dollar so that they could buy oil from the Arabs but at the same time other currencies like Euro Yen and Yuan began to rise in the World Trade this is a story of how the US dollar was first backed by gold then it got backed by oil and now the US dollar is not backed by any commodity but by oil trade this is a reason why all countries across the world have their dollar reserves in the form of US Treasury bonds if you look at this graph Japan holds 1. 1 trillion in US bonds China holds $797 billion and India holds $236 billion in US Treasury bonds but now the question over here is if all the countries in the world could buy oil and dollars and the US dollar has been used for such a long time then why are these countries suddenly buying so much gold well firstly if you look at what happened during the Russia Ukraine war as soon as the war started the United States froze $300 billion of Russian assets all across the west and most of this money was Russian money stored in US Dollars similarly even for Afghanistan after Taliban took over the United States froze $7 billion of their reserves so after 2022 China got worried because just like like Russia the us could even seal China's $797 billion in US Treasury bonds that could make things terrible for China why because even the US and China are engaged in a trade war and China is now very very keen to occupy Taiwan so if you look at this graph it's only after the Russia Ukraine war that China has started buying an enormous amount of gold and the same is the case with Czech Republic Poland and Singapore in fact Poland is even more cautious because it is very close to Ukraine now this is not to say that all countries are suddenly abandoning the US dollar but we can definitely say that the confidence of the world in the US dollar is decreasing slowly and steadily it is so slow and steady that it might take another 50 years for another currency to become the reserve currency of the world if you look at this graph the reserve currency market share for the US dollar has decreased from 75% in 1970 to 59% in 2022 so long story short gold prices are increasing because of the US freezing Russian Reserve which is pushing other countries to diversify into gold but now the question over here is India or China are not in war with the US right then why are India China and so many other countries drisking themselves from the US dollar when they're not engaged in any kind of war with the US well this is what brings me to the second reason for dollar drisking which is the United States bad habit of Reckless money printing if you look at history you will see that the United States has frequently engaged in money printing for example if you look at this chart the United States has been steadily printing a lot of money they printed almost a trillion dollars in 2008 when the US was in recession they printed 4 trillion in 2020 and again they printed just about $2 trillion in 2021 so if you see 2020 and 2021 combined the United States printed so much money that the printed money alone was equal to twice the GDP of India back then so because of this what happens inflation happens all across the world and the value of the US dollar go goes down so today if $100 could buy you 25 Burgers after inflation you could just buy 20 Burgers now do you remember why the countries chose the US dollar as a reserve currency because at any given point in time they could use the US dollar to exchange it for gold so it was for preservation of value right and why couldn't they trust Pakistan because Pakistan could suddenly print money and the value of their currency might drop right well guess what that is exactly what the US is doing right now which is printing money and decreasing the value of other Count's dollars which means what if China has 3. 2 trillion in reserves and the US prints money the value of this Chinese dollar Reserve will go down and here's why ladies and gentlemen gold comes into the equation when it comes to Gold nobody can print or manufacture gold right so the value of gold is always preserved this is the second reason why countries all across the world are buying gold which is the US dollar printing that is degrading their reserves in fact gold is available in such limited quantities that you would be shocked to know that the entire world's gold I repeat the entire world's gold can fit in a 23x 23x 23 M Cube so with such limited availability the value of gold is always preserved if this is very very clear to you let's come to the third reason and that is the massive consumption from both Indian and Chinese consumers for India the story of gold is pretty obvious as our per capita income increases we will keep on buying gold for festivals and for wealth creation this is irrespective of what happens in our Market but you know what guys for China the story is a little interesting it can be summarized in two points firstly as we all know China is witnessing a real estate bubble crash long story short the Chinese government tried to boost the real estate in such a way that lots of Builders built a lot of buildings and people of China bought houses in these buildings for investment purposes but suddenly they realized that there is an over supply of houses so suddenly the real estate market of China has come crashing down secondly if you see the Chinese stock market the Chinese stock market is also not giving enough returns in fact if you look at this graph the shanga index has only appreciated by 5.

87% in the past 5 years whereas if you look at the Indian sensex it has appreciated by 94. 4% and the S&P index has appreciated by 85. 2% this is a reason why the Chinese people are investing a lot of money in gold it's like you bought a flat in Mumbai for 1 CR rupees but after 3 years its value has come down to 70 lakh Rupees at the same time it's like your portfolio has only appreciated by 6% in the past 5 years so now you tell me if real estate is down and the stock market is sluggish what would you do you would invest in gold right well that is exactly what the Chinese are doing and if you look at their consumption it's massive if you look at this graph the Indian consumers bought 774 tons of gold and the Chinese consumers bought bought 824 tons of gold so the Chinese and Indian consumers both bought more gold than the next 10 countries combined and according to the world gold Council the Chinese consumers have started buying so much gold that the consumption has spiked from 641 tons in 2020 to 959 tons in 2023 this is the third reason why the gold prices are increasing which is an extraordinary demand from both Indian and Chinese consumers and the fourth reason for this priz hike is investor sentiment and if you actively invest this is something that you will find very interesting look at this graph they say that gold usually has a negative or low correlation with the stock market in simple words more often than not when the stock market goes up the price of gold goes down and when the stock market goes down the price of gold either goes up or it goes down by a lesser margin to tell you about it look at this graph during the 1973 oil shock when there was a recession all across the world while the S&P went down by 133% the gold price is shot up by 87% similarly during 2001 2008 and even in 2020 recession while the S&P went down by 1.

8% 37% and 1. 4% the price of gold went up by 5% 16. 3% and 5.

6% and in 2022 during the Russia Ukraine war when the S&P went down by 19. 6% gold only went down by 2.